After a period of strong growth and high expectations in 2010, there is the possibility that the value of commercial property in the UK could ‘stall’ next year.
According to a retail estate consultancy; property assets are predicted to return about 6 per cent in total next year, which will be well down on total returns of about 16 per cent during 2010.
Almost all of this return will be based on rental income, however, while the capital value of property is forecast to be at best static on average and with big falls in poorer quality assets outside London.
Central London offices will continue to lead the stronger performing sectors, however, with continued demand from overseas wealth funds looking for “safe haven” assets.
Chris Ireland, joint senior partner and head of investment at the consultancy, said that the overall performance of property as an asset class during 2011 would “be comparatively languid” compared with 2010.
“We anticipate total returns for this asset class of only 6 per cent in the coming year. However, there will be wide variations by property type, with central London offices showing outperformance at one extreme, and secondary, regional unit shops or elderly offices in public sector dependant towns at the other.” King Sturge expects the majority of demand for UK prime assets to come from overseas investors and sovereign wealth funds, pointing out that an average of 70 per cent of London deals were by overseas investors over the past two years.
It expects more conventional UK institutions to “play safe” acquiring assets that produce annuity type returns, such as properties let for a long term.
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